IQ Matters. Education Matters. (if Money Matters)

Via Steve Sailer:

Steve Hsu has a fascinating post on a new paper by Nobel laureate economist/statistician James Heckman on the historic 1921 Terman Project tracking more than 600 California white males with 135+ IQs over seven decades. You often hear about how this project shows that IQ doesn’t matter because, say, none of Terman’s Termites ever won the Nobel Prize.

This paper estimates the internal rate of return (IRR) to education for men and women of the Terman sample, a 70-year long prospective cohort study of high-ability individuals. The Terman data is unique in that it not only provides full working-life earnings histories of the participants, but it also includes detailed profiles of each subject, including IQ and measures of latent personality traits. Having information on latent personality traits is significant as it allows us to measure the importance of personality on educational attainment and lifetime earnings.

Heckman explains:

4.1 The Total Effect of Personality and IQ on Lifetime Earnings

We begin by analyzing how personality and IQ influence lifetime earnings. We use the sum of each individual’s earnings from age 18 to age 75. … With this simple regression, Conscientiousness and Extraversion are positively associated with earnings, while Agreeableness and Openness are negatively associated with earnings (although Openness fails to be statistically significant in this very simple exercise). Our measure of Neuroticism does not have a clear association with earnings. It is remarkable that even in this very high-IQ sample, where the range of observed IQs is clearly restricted, IQ still has a positive and statistically highly significant association with lifetime earnings.

This sounds about right from my long observations of highly successful entrepreneurs in a cognitively demanding field (market research): they were Intelligent (probably in the 125-160 range), Extraverted (good salesmen), Conscientious (i.e., hard-working), not too Neurotic (if they worried more about what could go wrong, they wouldn’t start companies), and not too Agreeable (they could kick ass when necessary, and were very competitive – raced yachts, drove imported Porsches that took six months to make street legal in the U.S.). They were probably more Open than average, although that has to do with them being entrepreneurs.

Heckman goes on.

Finally, note that even when controlling for rich background variable [such as education], IQ maintains a statistically significant effect on lifetime earnings. Even though the effect is slightly diminished from the uncontrolled association of the first column, it is still sizeable. Malcolm Gladwell claims rather generally in his book “Outliers” that for the Terman men, IQ did not matter once family background and other observable personal characteristics were taken into account. While we do not want to argue that IQ has a larger role for the difference between 50 and 100, for example, than for the difference between 150 and 200, we do want to point out that even at the high end of the ability distribution, IQ has meaningful consequences.

In other words, people with 200 IQs will, on average, make more money than people with 150 IQs, all else being equal.

For these very smart termites, getting more education increases lifetime income.

One caveat about causality is in order… We partially follow this approach by using early measures of Openness and Extraversion. However, the other personality traits are measured at a time where the men are already in their working lives. Thus, these measures are more relevant to the observed earnings, but at the same time we cannot exclude the possibility that, for example, a high score on Neuroticism is a result of one’s position in the workforce.

In other words, Terman asked personality questions back in 1922 of the youths that map well onto today’s Big 5 personality traits of Openness and Extraversion, but the project didn’t get around for a decade or two to asking questions that map to the other three Big personality components: Neuroticism, Agreeableness, and Conscientiousness. For example, my dad spent 40 years as a stress engineer at Lockheed worrying about whether the wings would snap off planes. Did he get into that career to start with because he always was a worry wart, or is he a worry wart today because he spent 40 years worrying about how to keep planes from crashing?

I always thought that I’d make more money by skipping grad school. But here I am doing academic research for not as much money as finance or silicon valley would provide … something is wrong. Either I love money, or I love academic research, or I’m happily lazy.